REG - Grit Real Estate Inc - Completion of Phase 2 of the acquisition

Grit Real Estate IncomeAnnouncement

31/08/2022 13:30

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RNS Number : 7976X  Grit Real Estate Income Group  31 August 2022

 GRIT REAL ESTATE INCOME GROUP LIMITED

 (Registered in Guernsey)

 (Registration number: 68739)

 LSE share code: GR1T

 SEM share code: DEL.N0000

 ISIN: GG00BMDHST63

 LEI: 21380084LCGHJRS8CN05

 ("Grit" or the "Company" or the "Group")

 

COMPLETION OF PHASE 2 OF THE ACQUISITION OF A CONTROLLING INTEREST IN

GATEWAY REAL ESTATE AFRICA LIMITED, THE LEADING DEVELOPMENT COMPANY FOCUSING
ON IMPACT REAL ESTATE TO MULTINATIONAL TENANTS

 

 

Grit Real Estate Income Group Limited, a leading pan-African impact real
estate company, setting the Global Benchmark in Africa and focused on
investing in, developing and actively managing a diversified portfolio of
African impact property assets underpinned by predominantly US Dollar and Euro
denominated long-term leases with high quality multi-national tenants, today
concluded phase 2 of the acquisition of a controlling interest in Gateway Real
Estate Africa Limited ("GREA") (the "Acquisition"), increasing its stake in
GREA to 35.01% from 26.29%.

 

The three phases to Grit acquiring a controlling interest in GREA were set out
in the Company announcement on the 11(th) April 2022, and included the
following:

 

 Phase 1            Grit acquired a 77.95% controlling stake in APDM, the external manager of GREA

                  and lifted its direct interest in GREA from 19.98% to 26.29%.
 (15 April 2022)

 Phase 2            Grit today lifts its interest in GREA from 26.29% to 35.01%.

 (31 August 2022)

 Phase 3            Grit retains an option to acquire the remaining 13.61% interest in GREA and an

                  additional 1% of APDM owned by Gateway Africa Real Estate Limited ("Gateway
 (15 Dec 2022)      Partners") settled in either cash or issuance of new Grit shares at US$0.52
                    per Grit ordinary share (at Gateway Partners election). If exercised, this
                    option would increase Grit's direct shareholding in GREA to 48.62% and APDM to
                    78.95%. Additionally, upon Gateway Partners exit or through control of APDM,
                    the asset manager, Grit will obtain control over GREA.

 

Bronwyn Knight, CEO of Grit Real Estate Income Group Limited, commented:

"We are pleased to announce today that Grit remains on track and is making
strong progress on acquiring a controlling interest in GREA by December 2022.
GREA is the leading development company in Africa focusing on Impact Real
Estate and developing smart business solutions for multinational tenants. The
completion of this transaction would provide Grit's shareholders with enhanced
income and capital growth from GREA's fully funded pipeline of accretive
development assets, which collectively have reached 80% completion, and new
fee income streams through APDM's substantial development and asset management
fees. Further additional value is also expected to be delivered to Grit's
shareholders on completion and the consolidation of GREA into Grit, including
an expected material reduction of up to c.3.9% in the consolidated Grit Group
LTV.

 

We recently attended the American Embassy (United States Bureau of Overseas
Building Operations) ribbon cutting in Nairobi, Kenya, which is a project
delivered by GREA, led by a female development team, constructed during the
Covid period and handed over to the client on time and within budget. This is
a key example of delivery of Impact Real Estate to multinational global
tenants by an experienced GREA development team.

 

Grit remains well positioned for the significant valuation recovery potential
across its existing high-quality property portfolio and will continue to
deliver positive sustainable value and impact to stakeholders including the
local communities in Africa that we serve."

 

Background and rationale to the transaction

GREA is a private real estate development company specialising in risk
mitigated turnkey construction of real estate solutions for multinational
companies operating in Africa. GREA develops assets on the strength of
USD-denominated or USD-linked long-term lease contracts signed with these
multinational tenants, who are predominantly either current or target clients
of Grit.

The Acquisition provides Grit with control of its own accretive development
pipeline and further strengthens Grit's ability to fully service its tenants'
real estate needs whilst creating positive and sustainable impacts and value
to the local people and communities we serve across Africa.

Significant potential value is expected to be created through the risk
mitigated development returns and strong fee generation that are now available
to the Group as a result of the Acquisition. Key investment highlights
include:

·    GREA is the only development company covering each key region of
Africa, and with its multi asset class focus, can deliver real estate
solutions for international global tenants within Grit's existing and target
tenant lists;

·    GREA's existing pipeline is fully funded through the existing
shareholders' equity contributions and secured construction debt facilities
already in place. Strong NAV growth is expected as projects are completed over
the next 24 months, delivering significant growth in the number and value of
income producing properties of the Group upon completion;

·   GREA has access to an extensive further pipeline of US diplomatic
housing (OBO) and data centre development opportunities, which are expected to
be accretive to Grit's NAV, are extremely resilient asset classes and offer
exposure to highly rated tenants to underpin and enhance Grit's future income
levels;

·      the Acquisition further diversifies the Grit Group's geographic
exposure and will reduce Grit's current exposure to Mozambique, which is
currently at c.38.7%, ahead of the target of 25% of the portfolio in any one
country;

·      post the Acquisition, Grit will continue to have development
exposure substantially lower than the Board's limit of 20% of Group's gross
asset value; and

·    through Grit acquiring the majority stake in APDM, Grit has the
potential to earn new fee income streams, including asset and facilities
management and development management, thereby accelerating Grit's strategy of
increasing its exposure to the provision of professional services internally,
to its clients and to other third parties.

Should Grit gain control of GREA, Grit would have the ability to direct
additional activities that would create potential value, including:

·    Balance sheet optimisation and disposal of non-core assets to
further reduce Grit's exposure to the retail segment. Such asset recycling
would be expected to free up capital that can be recycled into new accretive
development opportunities within GREA.

·     When combined with Grit's balance sheet upon Grit potentially
gaining control, and therefore consolidating GREA into Grit, GREA's current
low leverage would be expected to result in a material reduction of up to 390
basis points (c.3.9%) in the consolidated Grit Group LTV.

·     Whilst GREA is expected to remain relatively lowly geared, its
construction debt facilities are amortising and relatively expensive compared
to Grit's debt facilities. Upon acquisition, GREA is expected to have access
to cheaper debt funding and, crucially, the ability to recycle operational
cashflow into new projects rather than debt repayments, thereby securing
enhanced levels of NAV and income growth for Grit's shareholders.

 

Summary of Phase two

Gateway Partners, a Dubai based private equity fund and co-founders of GREA,
expressed an intention to sell their stake in GREA in mid 2021, which under
the terms of the shareholder agreements, was first offered to existing GREA
shareholders. Although Grit originally offered to purchase Gateway Partners'
entire stake in December 2021, the Acquisition was latterly restructured into
a three phase pathway to Grit acquiring a controlling interest in GREA by 15
December 2022.

 

Grit today announces the acquisition from Gateway Partners of a further 8.72%
in GREA for a cash payment of US$19.44 million. The funds were sourced from
recently announced asset sales, redirecting of excess Ethos / Bluepeak
preference note proceeds and from the Group's revolving credit facilities.

 

The combined effect of Phase 1 and Phase 2 of the GREA and APDM acquisitions
would have been an increase in the Group's reported LTV on a pro forma basis
as at 31 December 2021 by 3.3% to 44.70%. Should Grit exercise its phase 3
Option and gain control, and therefore consolidation of GREA, the current low
leverage in GREA would be expected to subsequently result in a reduction in
consolidated Grit Group LTV of c.3.9%

 

GREA shall, with the completion of phase 2, continue to be an associate of
Grit with Grit's shareholding in GREA increasing to 35.01%. The combined Gross
and Net Assets the subject of Phase 1 and Phase 2 of the transaction are
US$33.52 million (being the consideration payable for 15.03% being acquired in
GREA) and US$17.2 million for APDM, totalling US$58.4 million.

By order of the Board

31 August 2022

FOR FURTHER INFORMATION, PLEASE CONTACT:

 Grit Real Estate Income Group Limited
 Bronwyn Knight, Chief Executive Officer                           +230 269 7090
 Darren Veenhuis, Chief Strategy Officer and Investor Relations    +44 779 512 3402

 Maitland/AMO - Communications Adviser
 James Benjamin                                                    +44 7747 113 930 / +44 20 7379 5151
 Alistair de Kare-Silver                                           Grit-maitland@maitland.co.uk

 finnCap Ltd - UK Financial Adviser
 William Marle/Teddy Whiley (Corporate Finance)                    +44 20 7220 5000
 Mark Whitfeld/Pauline Tribe (Sales)                               +44 20 3772 4697
 Monica Tepes (Research)                                           +44 20 3772 4698

 Perigeum Capital Ltd - SEM Authorised Representative and Sponsor
 Shamin A. Sookia                                                  +230 402 0894
 Kesaven Moothoosamy                                               +230 402 0898

 Capital Markets Brokers Ltd - Mauritian Sponsoring Broker
 Elodie Lan Hun Kuen                                               +230 402 0280

NOTES:

Grit Real Estate Income Group Limited is the leading pan-African real estate
company focused on investing in, developing and actively managing a
diversified portfolio of assets in carefully selected African countries
(excluding South Africa). These high-quality assets are underpinned by
predominantly US$ and Euro denominated long-term leases with a wide range of
blue-chip multi-national tenant covenants across a diverse range of robust
property sectors.

The Company is committed to delivering strong and sustainable income for
shareholders, with the potential for income and capital growth.

The Company holds its primary listing on the Main Market of the London Stock
Exchange (LSE: GR1T and a secondary listing on the Stock Exchange of Mauritius
(SEM: DEL.N0000).

Further information on the Company is available at www.grit.group

Directors:

Peter Todd+ (Chairman), Bronwyn Knight (Chief Executive Officer)*, Leon van de
Moortele (Chief Financial Officer)*, David Love+, Sir Samuel Esson Jonah+,
Nomzamo Radebe, Catherine McIlraith+, Jonathan Crichton+, Cross Kgosidiile and
Bright Laaka (Permanent Alternate Director to Nomzamo Radebe).

(* Executive Director) ((+) independent Non-Executive Director)

Company secretary: Intercontinental Fund Services Limited

Registered office address: PO Box 186, Royal Chambers, St Julian's Avenue, St
Peter Port, Guernsey GY1 4HP

Registrar and transfer agent (Mauritius): Intercontinental Secretarial
Services Limited

SEM authorised representative and sponsor: Perigeum Capital Ltd

UK Transfer secretary: Link Assets Services Limited

Mauritian Sponsoring Broker: Capital Markets Brokers Ltd

This notice is issued pursuant to the FCA Listing Rules and SEM Listing Rule
15.24 and the Mauritian Securities Act 2005. The Board of the Company accepts
full responsibility for the accuracy of the information contained in this
communiqué.

Further details on the pathway to control in GREA and APDM were announced in
April 2022 and include:

APDM

In April 2022, Grit acquired a 77.95% controlling interest in APDM, for
US$16.48 million through the issue of shares and cash consideration. Grit has
an Option to acquire an additional 1% of APDM owned by Gateway Africa Real
Estate Limited, by 15 December 2022.

 

APDM provides development management, asset management, advisory and
administrative services to GREA under the provisions of Asset Management and
Advisory Services Agreement ("AMASA"), whereby APDM is entitled to charge
development management fees to GREA and further real estate management fees
payable on fair value of the completed properties owned by GREA.

 

GREA

In April 2022, Grit also increased its interest in GREA from 19.98% to 26.29%
for a consideration of US$14.08 million. Grit now acquires a further 8.72%
shareholding in GREA for a payment of US$19.44 million, increasing its
shareholding to 35.01%.

 

Grit has an option from Gateway Partners (the "Option") to acquire their
remaining 13.61% interest in GREA by 15 December 2022.

Path to control of GREA

Through Grit's investment in APDM (the asset manager of GREA), Grit currently
exercises operational control over the all the material business activities
(including development of properties, day to day management of the completed
assets, leasing activity and operational cost management), governed by the
terms of the AMASA and the GREA Investment Charter.

For Grit to obtain a majority at the GREA Board (and thereby control GREA),
any of the following events would need to occur:

·    Grit exercises and concludes its option to acquire the remaining
shares of Gateway Partners by 15 December 2022 thereby acquiring all the
rights of Gateway Partners under the shareholder agreement; or

·      Gateway Partners sell their remaining shares to a third party; or

·   GREA makes changes to the shareholders agreement to remove certain
rights granted to the founding shareholders.

Details of key individuals

·     GREA has a strong board and, through APDM, an equally strong
executive management team and investment committee comprising individuals with
exceptional track records in creating, building and managing property
development and investment companies.

·     APDM's management team and staff have become employees of the
enlarged Group on essentially the same employment terms as they enjoyed at
APDM and the Grit shares now held by the GREA Executive Share Trust, under the
long-term incentive plan, will vest on the earlier of achievement of return
hurdles of GREA or three years. Certain participants have also been enrolled
to the Grit long-term incentive plan and awarded shares which vest upon the
fulfilment of specific key performance indicators.

·     The APDM team is led by chief executive officer, Greg Pearson, who
is also a co-founder of Grit. Greg has successfully completed a series of
developments across the office, retail, leisure, education and healthcare
sectors and also sits on the Board of GREA as its de facto CEO.

·      Greg is supported by the following executive team members:

o  Krishnen Kistnen, Chief Financial Officer

o  Andre Janari, Chief Investment Officer

o  Craig Glutz, Head of Developments

o  Shevira Bissessor, Chief Operating Officer

 

Except as disclosed, there has been no significant change affecting any matter
contained in the earlier notification and no other significant new matter has
arisen which would have been required to be mentioned in that earlier
notification if it had arisen at the time of the preparation of that
notification.

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